Luxury stocks slide as Vuitton strength fails to quell China worries

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PARIS (Reuters) - Robust appetite in the third quarter for Louis Vuitton handbags and other high-end goods sold by LVMH (LVMH.PA) failed to dispel fears of a looming slowdown in Chinese demand on Wednesday, as shares across the sector tumbled.

Paris-based LVMH, the world’s biggest luxury goods company, on Tuesday reported stronger-than-expected sales growth in its all-important fashion and leather goods division in the three months to end-September, while overall revenue met expectations.

Shares were down 4.25 percent by 0832 GMT, however, while those at Gucci-owner Kering (PRTP.PA), LVMH’s cross-town rival, were also 5 percent lower. Stocks in French handbag maker Hermes (HRMS.PA), Britain’s Burberry BRBY.PA and Italian luxury puffer jacket firm Moncler (MONC.MI) were also hit.

A simmering trade war between Beijing and Washington and its potential knock-on effect on Chinese consumers, the number one clientele for luxury goods manufacturers, has rattled investors in recent months.

Falls in the yuan have also added to concerns that shoppers will lose purchasing power, with many still tending to splurge on goods on overseas trips.

“I think the market is in ‘sell the news’ mode, anticipating a looming slowdown due to the trade war,” a trader in Geneva said.

Brokers at Morgan Stanley downgraded the luxury goods sector to “underweight” on Wednesday, also adding to pressure on industry stocks.

Many luxury goods companies are still trading above their average valuations of the last 12 months, after a rally fuelled by rebounding sales in the past two years.

That has made the stocks increasingly vulnerable to a sell-off as the United States and China trade barbs over potential hikes in import tariffs.

“A material slowdown in China presents the biggest risk to the sector,” Morgan Stanley said in its note, highlighting “stretched” valuations in the luxury industry.

LVMH - also home to couture label Givenchy and the recently revamped Celine brand, which it wants to big up under a new designer - has been among the biggest beneficiaries of the benign industry backdrop until now.

“LVMH and Kering have had fantastic numbers in the past years - even if today’s numbers are still good, the market was hoping that the past outstanding growth trend would extend a few years longer,” said Pierre Willot, fund manager at Paris-based Montaigne Capital.

Kering will publish third-quarter sales on Oct. 23. LVMH is due to hold a conference call following its latest numbers later on Wednesday.